- PayPal’s stock price has fallen 80% from its 2021 peak, raising skepticism among investors.
- Intense competition from younger, innovative companies has challenged PayPal, leading to the hiring of new CEO Alex Chriss to revive growth.
- Recent Q2 earnings show improvement, signaling a potential turnaround under the new leadership.
Three Reasons to Consider Buying PayPal Stock:
- Margin Improvement:
- PayPal’s core business is payment processing, contributing over 60% of total payment volume.
- Gross profit margins have been under pressure due to competitors like Adyen and Stripe.
- Recent improvements in gross margins (+70 basis points from Q1 to Q2) suggest a positive trend, with a renewed focus on product innovation.
- Increased Customer Engagement:
- PayPal has 429 million active users, but only 222 million are monthly active users.
- Q2 saw a 3% year-over-year increase in monthly active users, marking the third consecutive quarter of growth.
- Venmo, a key driver, saw a 5% year-over-year increase in monthly active users, with overall transactions per user rising by 11% from the previous year.
- Raised 2024 Guidance:
- Despite competition, PayPal continues to grow, with management raising its 2024 guidance across key metrics, including transaction margin dollars, earnings per share, and free cash flow.
- The stock is trading at 15 times earnings, a significant discount to the S&P 500, which trades at over 22 times earnings.
- If PayPal maintains its current momentum, the stock could offer double-digit investment returns.
Conclusion:
- PayPal’s stock could be a compelling buy today due to its improving margins, increasing customer engagement, and favorable valuation compared to the broader market.